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What is the National Mortgage Settlement?

Will Your Bank Give You a Principal Mortgage Reduction?

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The National Mortgage Settlement probably means very little to the average homeowner whose home is underwater or, worse, in foreclosure. However, there are homeowners who are entitled to offers of relief from lenders, and you might be one of them. The historic settlement provides slightly more than $25 billion dollars of relief.

National Mortgage Settlement's 5 Banks

The settlement provides relief through a complicated system. It involves cash payments, certain types of loan credits, principal mortgage reductions, mortgage servicing reforms and foreclosure assistance payments. I may not be able to name each of the 7 Dwarfs in a trivia question, but I can certainly name the top 5 banks in the national mortgage settlement. Here are the banks and allocations:

  • Ally / GMAC -- $610 million
  • Bank of America -- $11.82 billion
  • Citigroup -- $2.21 billion
  • JP Morgan -- $5.29 billion
  • Wells Fargo -- $5.35 billion

What Do the Banks Do Wrong?

While lots of people are probably thrilled to see the banks get slapped and held accountable, what did the banks do to deserve it? The better question might be what didn't they do? You don't have to look very far to find stories of desperate homeowners reaching out to their lenders and, instead of being helped, they ended up getting kicked in the gut.

Banks are accused of deceptive banking practices. A sample scenario goes like this: The distressed homeowner calls the bank to say she lost her job and needs help meeting her mortgage payment. Her home is worth less than her mortgage, so she can't sell it without doing a short sale but she wants to keep her home. She asks to do a loan modification.

The bank says sure, but first the homeowner must make temporary loan modification payments for 3 to 6 months. During this time, the bank files a foreclosure notice because it doesn't receive a full mortgage payment. By the time the homeowner is informed the loan modification has been denied, it is too late to stop the foreclosure, and the home goes to public auction.

You've got also got the entire robo-signing fiasco. This is when the banks allegedly hired individuals to sign thousands of foreclosure documents without actually reviewing the documents. Nobody knows for certain how many homes completed the foreclosure process without review or possible cause.

How are the National Mortgage Settlement Funds Distributed?

A case before a judge and jury would take many years in court to fight. Usually, in those circumstances, it's the lawyers who make out. But there were other reasons to reach a fast settlement. The main reason is people need help now. Some of them have been hanging on by a thread for a number of years and can no longer afford to do so. Here is where the money went:

  • $17 Billion for Home Preservation

    At least $10 billion of the $17 billion allotment is earmarked for principal mortgage reduction programs. Bank of America distributed letters offering homeowners up to 50% principal mortgage reduction. One such offer is 3.194% interest in exchange for 3 months of temporary loan modification payments. This offer exceeds the guidelines set forth. Upon receipt of 3 months of payments, the bank's offer in one instance is an adjustable loan fixed for 5 years and adjusting 1% per year to an unspecified cap.

    The balance is for other home preservation programs and foreclosure alternatives.

  • $3 Billion for Mortgage Refinancing of Underwater Homes

    Unlike the HARP refinance program, which is limited solely to Fannie Mae and Freddie Mac loans, the mortgage refinancing component of the National Mortgage Settlement does not carry that requirement. To be eligible, a borrower must:

    1. Have a non-Fannie Mae, non-Freddie Mac loan
    2. Be current on mortgage payments
    3. Have a loan-to-value ratio over 100%
    4. Have an interest rate that exceeds 5.25%
    5. Reduce existing payments by at least $100 after the refinance

  • $1.5 Billion to Foreclosed Homeowners

    This payment applies to certain borrowers who were foreclosed upon after January 1, 2008. These are borrowers who were not offered loan mitigation alternatives, whose files were mismanaged or who suffered an inappropriate foreclosure. It's not a lot of money, only $2,000, but $2,000 is better than a poke in the eye with a stick.

  • $2.5 Billion to States for Local and County Housing Programs

    State attorneys general will receive funds to distribute to local foreclosure programs such as foreclosure counseling, foreclosure hotlines, foreclosure legal help, foreclosure mediation and other foreclosure-related services in local communities.

    *The distribution is missing $1 billion, but that ommision must be intentional for some reason. All figures are approximate. What's a billion among friends?

How Can You Qualify for the National Mortgage Settlement?

You can contact your state attorney general's office. This link takes you to a list of the national State Attorneys General offices.

You can also call your bank at the following numbers:

  • Ally / GMAC 800.766.4642.
  • Bank of America 877.488.7814
  • Citigroup 866.272.4749
  • JP Morgan Chase 866.372.6901
  • Wells Fargo 800.288.3212

Funds will be distributed over a 3-year period.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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